Law on Credit Institutions 2017 on Enhancing the Protection of Depositors' Rights

- The amended Law on Credit Institutions will have a significant impact on the entire banking system, especially the provisions related to the bankruptcy of banks. From the perspective of an expert with many years of experience in the industry, what is your assessment?

- The Law on Credit Institutions represents a turning point in the management and operation of Vietnam's commercial banking system. Previously, there was a Law on Bankruptcy for enterprises, but the provisions there only regulated the initiation of bankruptcy procedures, the liquidation of a bank's assets, and the allocation of liquidated assets to fulfill the bank's debt obligations.

The amended Law on Credit Institutions focuses on restructuring options for credit institutions, including bankruptcy plans. The restructuring options include recovery, merger, consolidation, dissolution, mandatory transfer, and bankruptcy. This means the new amended law targets the handling of weak institutions with various methods to recover and maintain credit institutions before bankruptcy is considered.

- There are concerns that if the law takes effect, weak banks are at risk of bankruptcy. What are your thoughts?

- Although the bankruptcy law has been in effect for many years, there has not been any instance of a bank declaring bankruptcy. In the past, some units ceased operations by order of the State Bank of Vietnam due to operational issues, insufficient equity, and ineffective operations, but no bank has ever been declared bankrupt.

Recently, many have called to ask me if, on January 15, when the amended Law on Credit Institutions takes effect, there would be a concern about bank bankruptcy. I want to reassure everyone that bank bankruptcy will not happen overnight. To implement a bankruptcy plan, the State Bank must first place a bank under “special control” and then apply restructuring measures as mentioned above before requesting the court to initiate bankruptcy proceedings.

Dr. Nguyen Tri Hieu stated that the Law on Credit Institutions will ensure the rights of depositors.

The amended Law on Credit Institutions specifically stipulates which cases can be placed under special control. During the period of special control, the tasks and powers of the State Bank and the government are also clearly defined, including special loans that the credit institution can borrow to recover. Finally, special control and restructuring plans must be implemented according to a prescribed sequential order. The duration of special control depends on the circumstances of each bank.

- In the event of bankruptcy, what will happen to the depositors' rights?

- In the event of bankruptcy, the court will appoint a trustee to manage the bank and begin liquidating the assets and debts. Depositors are first compensated up to VND 75 million from the national deposit insurance, after which they have to wait for the court to liquidate the assets and may potentially recover 100% of their deposited money.

Usually, a bank that is subject to bankruptcy procedures has lost its ability to meet debt obligations, cash is exhausted, revenue-generating assets have significantly depreciated due to high risks, and real estate assets may have been sold off to repay debts. For this reason, in most countries, bank bankruptcy is a last-resort measure.

Before discussing bankruptcy, regulatory agencies typically look for ways to merge or sell the bank (whole or in parts) to another economic entity. The acquiring entity will assume all the customer deposits of the bank, allowing depositors to rest assured that their money is guaranteed by another bank.

Bankruptcy solutions for credit institutions according to the law will only be implemented when they do not affect the safety and stability of the credit institution system, legitimate rights and interests, and the trust of depositors.

- Will the State Bank have more proactive interventions and tighter management to reassure and instill more confidence in consumers regarding the safety of the system?

- The amended law sets strict regulations for the State Bank to intervene early in credit institutions at risk, then place them under special control and apply measures to recover or bankrupt them. Concurrently, the State Bank has several tools with special mechanisms to support the bank to operate and recover.

This law will contribute to accelerating the restructuring of the banking system, helping banks currently undergoing restructuring to complete their objectives soon and not rely on always being protected by the State Bank from bankruptcy. One significant benefit for the economy is that from fair competition, banks will no longer arbitrarily raise interest rates to attract capital.

Currently, the banking system is developing stably, with successful restructuring cases such as the National Citizen Commercial Joint Stock Bank (NCB). NCB was previously a small-scale operation, but recently, it has restructured strongly, increased its equity, reorganized its Board of Directors and Executive Board, and enhanced its products and services. With these efforts, this bank achieved very good business results in 2017 and even has plans to increase its capital to join the ranks of the leading banks in the system.

Source: ZingNews

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